One of the most common questions we are asked is how much an employer should spend on employee recognition. While there is a lot of variance around the USA and even more variations throughout the world, we’ve put together some general guidelines.
There are several things you should do when creating a recognition budget and not all of them are financially based. Let’s take a look at how to build an employee recognition budget
1. Identify the “Whys” of Your Recognition. Set Clear Goals
Identifying the goals of your recognition program is important for an effective program. Specific goals will identify if your program is successful or not. If your goal is simply to “help employees feel good,” then a company party might be cheaper.
Instead, a good recognition program should focus on company values and vision. Look at each role within your organization and identify the activities, successes, and projects that help to meet your organizational goals and that align with your values.
Recognition for activities that are irrelevant to the organizational goals or that conflict with your values will only hinder your growth and reputation. Sadly, some employers have found themselves recognizing results from actions that are considered shady. This has eroded public trust with their organization.
When you identify both the activities that drive your mission and look at them from an ethical and value standpoint, you can ensure that your employees are getting recognized for activities that help, not hurt your company.
Check out how Thanks promotes company values through recognition
2. Identify How Much You Already Spend
Even employers without a formal recognition budget spend money on recognition. Putting a budget to paper can feel overwhelming unless you put an accurate number of your existing expenditures.
Consider employee paid lunches with a manager, team celebration activities, gift cards purchased locally and given by department managers, or local activities and event tickets given away. Most organizations spend far above their “official” recognition budget to reward employees. Failing to recognize and organize those budgets can mean disjointed goals and recognition.
When you accurately account for all recognition given, you can then assign a department budget back to your managers that aligns with company goals and is trackable.
3. Identify the Types of Recognition You Plan to Utilize
Recognition can be broken down to three levels and several types of recognition. Managerial, Peer-to-Peer, and Service-related recognitions.
Manger Recognition:
Manager recognition includes everything from recognition by immediate supervisors to company-wide annual events. This includes employee spotlights, gift cards, team meeting recognition, End-of-the-year bonuses, and leadership awards.
Manager recognition is an important aspect of recognition because managers set the culture for what is expected of employees. Research shows that when certain behaviors are rewarded, they are more often repeated.
Recognizing employees engrains desired behaviors, habits, and results into employee habit. It can produce dramatic results in what employees accomplish.
Peer-To-Peer Recognition
Peer recognition is important to create a culture of team unity and belonging. Peers can often see the down-in-the-weeds daily activities and challenges of team members. Encouraging peer recognition provides a great culture of recognition and encourages greater engagement from your employees. It also provides valuable positive feedback to employees on a regular basis.
Service Award Recognition
Service awards include awards for years of service, as well as other recognitions that are provided to employees without specific goals, activities, or results accomplished. This can include bonuses given to all employees, recognition parties that include everyone, or other service-related awards. It can also include birthday recognition, work anniversaries, or other important benchmarks.
Service awards are an aspect of recognition that is coming under fire. On one hand, a work anniversary rewards employee simply for not leaving, regardless of how they perform or whether they are a subpar employee or not.
But service awards have been shown to extend the average tenure of employees. And they provide a way to reward employees who have remained loyal during both great years and hard years.
Combined with other recognition, service awards can be a very valuable part of a recognition program.
See a demo on how Thanks provides all three types of recognition
4. Guidelines for Recognition Budgets
The average budget for recognition is 2% of payroll expenses. Other employers spend a set amount per employee.
SHRM recommends that recognition budgets are at least 1% of payroll. 1% is the mean budget for employer recognition. Some employers spend a significantly higher percentage on recognition, as much as 8-10%.
If you want to set up an initial, conservative budget, consider a set dollar amount per employee FTE, or full time equivalent. For every full-time employee, assign a set dollar amount. $30-50 per employee, per year is often a good starting point for recognition.
5. Vary Recognition to Avoid Stagnation
To make your recognition program more effective and keep it as a motivator for your employees, make sure to vary the types or recognition you use. Combine larger recognition awards with smaller and more frequent awards.
Consider crafting a program that includes many types of recognition. This can include recognition that doesn’t have specific costs associated such as e cards, social recognition, and other public recognition. It can also include gift cards, bonuses, parties, or company-wide recognition events.
6. Involve Everyone in Recognition
Recognition has a huge impact, not just on the employees being recognized, but on other team members. Employees are recognized for small, but significant actions. Plus, the ability to recognize others increases involvement and engagement with the employees doing the recognizing.
Increase engagement throughout your entire team by making recognition company-wide. Engaged employees perform better and be advocates for the organization. They are the employees that go above and beyond, that solve problems, and find solutions to employer problems.
Check out how peer-to-peer recognition is seamless through Thanks
7. Review Tax Law and Other Legal Requirements of Recognition Programs
Once your recognition program is fleshed out, make sure to check with your accountant for recognition laws and government requirements. Certain types of recognition have tax requirements and should be included as part of an employee’s total compensation.
But, other types of recognition and dollar amounts don’t require reporting to the IRS.
Plus,
Be aware that recognition programs should be applied equally to employees regardless of race, gender, religion and other minority statuses. Make sure that your program doesn’t have inherent rules that discriminate against a subset of employees. Programs that only reward employees who volunteer for overtime can inadvertently discriminate against parents who have child-care restrictions.
Watch for recognition that can exclude or discriminate against religious beliefs and holidays, genders, and other factors.
Conclusion
Employee recognition budgets don’t have to be difficult or expensive. Incorporating recognition into your company culture makes it more effective without adding great costs.
About Thanks
Thanks is a leading provider of a recognition-based platform that increases communication, builds teamwork, and makes recognition a part of company culture. Fast, easy and simple Thanks makes it easy to bring data-driven employee recognition to your entire organization. O.C. Tanner purchased the Thanks platform in 2019 to fulfill the recognition needs of smaller businesses.
Thanks customers benefit from the same decades of research in employee motivation and company culture that O.C. Tanner enterprise clients enjoy, but in a product that is geared for fast, easy and simple deployment. Whether you’re starting a recognition program or improving and expanding on what you already have, Thanks has everything you need to engage your people with effective, scalable recognition. Thanks is a subsidiary of OC Tanner.